Fed meet outcome holds key on USD-EUR pair trade

Dharmesh BhatiaThe Euro has been all over the place during the trading sessions this week. The pair has remained in range of 1.1200-1.0800 as traders trying to peruse whether or not global demand is going to continue to slump, perhaps due to the coronavirus outbreak.All the more, Germany’s IFO Business Climate survey for January 2019 was fairly disappointing at 95.9, weaker than last month’s 96.3. The downbeat data has made EURO vulnerable, pushing it to a new session low of 1.1010.The greenback simultaneously opened at a 6-week high of 97.81 and has managed to stay above 98 levels. However, the US dollar still remains undermined by the growing impact and concerns over the virus outbreak in China.Furthermore, the US Dollar could make gains against the Euro following today’s release of December’s US durable goods orders and contrary to it, the Euro could make further gains ahead of the US Fed Reserve’s meeting on Wednesday. While it is expected by the Fed to leave monetary policy unchanged, if the FOMC is overly dovish during the press conference, USD price may correct.RSIThe RSI remains flat and is holding near 45 suggesting a range bound movement.Falling Demands and Higher CostsThe euro, which was expected to rise this year, has instead tumbled amid concerns about a potential trade spat with the U.S. that could hurt the region’s auto industry, along with worries that China’s growth will be damaged by the spread of the deadly Novel Coronavirus.As per the European Automobile Manufacturers Association, the industry accounts for 11% of all EU manufacturing jobs and generates an 84 bn Euro trade surplus. If either the trade pact or health crisis worsens or Europe fails to adopt offsetting fiscal measures, an accommodative yet optimistic ECB may have to reconsider its policy path and ease further.The auto industry faces further consolidation and jobs will migrate to lower-cost countries as companies struggle to develop cleaner vehicles in an economic downturn as per ACEA. Forecasting the first downturn in EU car sales in seven years, the Brussels-based lobby group said it expects registrations to drop 2% in 2020. Elsewhere, China, the world’s largest auto market, saw its second annual fall last year, with drops in 18 out of the past 19 months.(The author is Associate Vice President, FX and Commodities, Emirates NBD)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.

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